The underlying values that parecon seeks to implement are equity, solidarity, diversity, workers' self-management and efficiency. (Efficiency here means accomplishing goals without wasting valued assets.) It proposes to attain these ends mainly through the following principles and institutions:

workers' and consumers' councils utilizing self-managerial methods for making decisions

Decision-making principle

One of the primary propositions of parecon is that all persons should have a say in decisions proportionate to the degree to which they are affected by them. This decision-making principle is often referred to as self-management. In parecon, it constitutes a replacement for the mainstream economic conception of economic freedom, which Albert and Hahnel argue that by its very vagueness has allowed it to be abused by capitalist ideologues.

Democratic Work Life

Workers in a Participatory Economy would make decisions about what to do in the workplace according to the above decision making principle, where workers have say in proportion to how much they are affected by a decision. Workplace decisions might be through majority vote, requiring 50% majority. Sometimes a higher percentage, such as a 2/3 majority, or 80%, or even consensus might be needed. For instance, upgrades to a plant that would require a great deal of time and effort for all workers might need greater than 50% vote, as workers would be affected adversely by the decision. Another example is when a decision might have advantages but involves some risk, such as raising a heavy beam while building a bridge that might endanger some workers, but will make the bridge be built faster. Such a decision would seem to require consensus among the affected workers, giving any one worker veto power due to the danger.

Personal decisions of any one worker, such as where to place pictures on their desk, do not require a vote at all, as they affect only one individual.

Balanced job complexes

Some tasks and jobs are more desirable than others, and some tasks and jobs are more menial than others. So, to achieve an equitable division of labour, it is proposed that each individual do different tasks, which, taken together, bring an average desirability and an average level of empowerment. The main goals are to dissolve economic hierarchy and achieve one class of workers, and to empower all to make contributions to the workplace. Hahnel and Albert argue that without balanced job complexes, those with empowering jobs, such as accounting or management, would be able to formulate plans and ideas, while others, such as janitors, would not develop the capacity to do so, neither would they have the training. Without balanced job complexes, most workers would most likely end up merely ratifying the proposals of empowered workers, and would have little reason to attend meetings.[2]

Compensation for effort and sacrifice

Albert and Hahnel argue that it is inequitable and ineffective to compensate people on the basis of their birth or heredity. Therefore, the primary principle of participatory economics is to reward for effort and sacrifice.[3] For example, mining work — which is dangerous and uncomfortable — would be more highly paid than office work for the same amount of time, thus allowing the miner to work fewer hours for the same pay, and the burden of highly dangerous and strenuous jobs to be shared among the populace.

Additionally, participatory economics would provide exemptions from the compensation for effort principle.[3] People with disabilities who are unable to work, children, the elderly, the infirm and workers who are legitimately in transitional circumstances, can be remunerated according to need. However, every able adult has the obligation to perform some socially useful work as a requirement for receiving reward, albeit in the context of a society providing free health care, education, skills training, and the freedom to choose between various democratically structured workplaces with jobs balanced for desirability and empowerment.

The starting point for the income of all workers in participatory economics is an equal share of the social product. From this point, incomes for personal expenditures and consumption rights for public goods can be expected to diverge by small degrees reflecting the choices that individual workers make in striking a balance between work and leisure time, and reflecting the level of danger and strenuousness of a job as assigned by their immediate peers.[3]

Allocation in a participatory economy

Consumers' and producers' councils

Albert and Hahnel proposed the creation and organization of consumers' and producers' councils to implement the decision making principle. These would be similar to workers' councils, and many individuals would be eligible for participation on both sides of the principle. Consumers' councils would act as decision-making bodies for consumption planning, and producers' councils - which are agglomerations of several workers' councils - act as decision-making bodies for production planning.

Geographically, consumers' councils could be nested within the same neighborhood councils, ward councils, city or regional councils and a country council used for political decision-making through parpolity - parecon's political counterpart. Decisions would be achieved either through consensus decision-making, majority votes or through other means compatible with the principle. The most appropriate method would be decided on by each council.

The producers' councils would probably correspond to workplace councils in each workplace and similar workplaces would group into nested councils on successively larger geographical scales.

Facilitation Boards

In a proposed Participatory Economy, key information relevant to converging on an economic plan would be made available by Iteration Facilitation Boards (IFBs), which, based on proposals from worker/consumer councils and economic data, present indicative prices and economic projections at each round of the planning process.

The IFB has no decision-making authority. In theory, the IFB's activity can consist mainly of computers performing the (agreed upon) algorithms for adjusting prices and forecasts, with little human involvement.[4]

At later stages of the planning process, the IFBs could present a number of annual plans consistent with the participatory planning results, to be chosen by a popular vote.

The facilitation boards should function according to a maximum level of radical transparency and only have very limited powers of mediation, subject to the discretion of the participating councils. The real decisions regarding the formulation and implementation of the plan are to be made in the consumers' and producers' councils.

Participatory Planning

The proposed participatory planning procedure would be a periodic (probably either annual, bi-annual or quarterly) event where citizens participate to determine which and how many goods to produce. This would result in new base prices, which could be adjusted between planning events by Facilitation Boards according to established guidelines to account for unforeseen circumstances.

The process would begin with Facilitation Boards first announcing a set of indicative prices which workers and consumers would use, individually and through their councils at each level, to decide on their production and consumption proposals. Proposals could be made either collectively through a local consumer council, or individually on a computer; or any combination of the two. Personal consumption proposals would be a prediction by each citizen of what goods and services they plan to consume the next year. Collective consumption proposals would be created by citizens making proposals for a wider geographical area (e.g. a new recreation center at the community level or a new power plant at the provincial level) and interested parties would be able to vote on collective consumption proposals affecting their region.

Workers' councils and producers councils would respond with production proposals outlining the outputs they propose to produce and the inputs they believe are required to produce them. Individual workers would indicate their proposed hours of work, and workers will be able to propose upgrades and innovations for their workplace.

When the proposals are all in, the IFBs aggregate all the production and consumption proposals for the different categories of goods and services – inputs into all the production processes as well as consumer goods – to see if proposed supply and demand are equal. If they are not equal for every good and service the IFB revises the set of indicative prices and the process is repeated through successive rounds until a consistent set of production and consumption proposals is arrived at. The facilitation boards then implement these final proposals by setting new prices and organizing production plans.

Pareconomists believe it would be possible for planning iterations to converge on a feasible plan within an acceptable time delay, and claim this method would lead to prices representing the estimated marginal social opportunity cost for all goods and services.

Money in a participatory economy

Pareconomists propose replacing conventional money with a personal voucher system which would be non-transferable between consumers, and would be only usable at a store to purchase goods.

The proposed electronic "credits" awarded to workers based on their perceived level of effort and sacrifice would simply be deducted from the workers account when used to make a purchase, disappearing rather than transferring the credit to the vendor. People would be able to borrow credits if approved by an appropriate board, but no interest would be charged.

Albert and Hahnel claim the non-transferability of parecon credits would make it impossible to bribe or even beg for money.[5] and monetary theft would be impossible. People would still be free to barter their individual goods with each other, e.g. exchange a couch for a stereo, but any attempt to create an exchangeable currency would likely be discouraged, as this might lead to attempts to reinstate money and capitalism. Credits might be shareable amongst family members, depending on how the parecon is set up.

Albert and Hahnel did not clarify how a currency of this form would be used in international trading with non-parecon countries. If a capitalist country refuses to be paid for their bought goods in this way, it is likely that a parecon nation would use money for international trading, but keep its unique credit currency for internal purposes.

Albert-Hahnel Class Theory

When analyzing the subject of class and how individuals stratified into them interact with each other, Albert and Hahnel came to the conclusion that Marxian class theory and views of class among capitalist economists were inadequate to assess how economies of all kinds are divided along class lines.

While both agree with many leftist theories of class that view wage-labor as resulting from the inequality of bargaining power between those who own the means of production in the economy (owner class) and those who operate them and produce wealth (working/producer class), they criticize theories which they claim fail to acknowledge a third class in-between labor and capital; the professional-managerial class or Coordinator class'. The coordinator class, they claim, are neither owners of the means of production nor producers of wealth but rather "monopolizers of empowering work" who's main function is to act as middle-men between ownership and production.

The interests of the coordinator class are seen as distinct from both workers and owners; this class's ideal is neither pure capitalism or worker self-management but a managerial state. Similar to the New Class theory, it is this class Albert and Hahnel claim which usurped power in former Communist states rather than the working class and rearranged economic power-structures in their favor.

Opposition to central planning and capitalism

Robin Hahnel has argued that "participatory planning is not central planning", stating "The procedures are completely different and the incentives are completely different. And one of the important ways in which it is different from central planning is that it is incentive compatible, that is, actors have an incentive to report truthfully rather than an incentive to misrepresent their capabilities or preferences."[6] Unlike historical examples of central planning, the parecon proposal advocates the use and adjustment of price information reflecting marginal social opportunity costs and benefits as integral elements of the planning process. Hahnel has argued emphatically against Milton Friedman's a priori tendency to deny the possibility of alternatives:

Friedman assumes away the best solution for coordinating economic activities. He simply asserts "there are only two ways of coordinating the economic activities of millions — central direction involving the use of coercion — and voluntary cooperation, the technique of the marketplace." [...] a participatory economy can permit all to partake in economic decision making in proportion to the degree they are affected by outcomes. Since a participatory system uses a system of participatory planning instead of markets to coordinate economic activities, Friedman would have us believe that participatory planning must fall into the category of "central direction involving the use of coercion."[7]

Albert and Hahnel have voiced detailed critiques of centrally-planned economies in theory and practice, but are also highly-critical of capitalism. Hahnel claims "the truth is capitalism aggravates prejudice, is the most inequitable economy ever devised, is grossly inefficient — even if highly energetic — and is incompatible with both economic and political democracy. In the present era of free-market triumphalism it is useful to organize a sober evaluation of capitalism responding to Friedman's claims one by one."[8]

Critique of markets

A primary reason why advocates of participatory economics perceive markets to be unjust and inefficient is that only the interests of buyer and seller are considered in a typical market transaction, while others who are affected by the transaction have no voice in it. For example when vehicles using fossil fuels are manufactured, distributed and sold, others outside the transaction end up bearing costs in the form of pollution and resource depletion. The market price of vehicles and fuel does not include these additional costs, which are referred to as externalities, resulting in prices which will not accurately reflect aggregate opportunity costs.

Mainstream economists largely acknowledge the problem of externalities but believe they can be addressed either through Coasian bargaining or the use of Pigovian taxes - extra taxes on goods that have externalities. According to economic theory, if Pigovian taxes are set so that the after-tax cost of the good is equal to the social cost of the good, the direct cost of production plus cost of externalities, then quantities produced will tend toward a socially optimal level. Hahnel observes, "more and more economists outside the mainstream are challenging this assumption, and a growing number of skeptics now dare to suggest that externalities are prevalent, and often substantial". Or, as E.K. Hunt put it externalities are the rule rather than the exception, and therefore markets often work as if they were guided by a "malevolent invisible foot" that keeps kicking us to produce more of some things, and less of others than is socially efficient."[9]

As long as a market economy is in place, Albert and Hahnel favour Pigovian taxes over other solutions to environmental problems such as command and control, or the issuance of marketable permits. However, Hahnel, who teaches ecological economics at American University, argues that in a market economy businesses try to avoid the "polluter pays principle" by shifting the burden of the costs for their polluting activities to consumers. In terms of incentives he argues this might be considered a positive development because it would penalize consumers for "dirty" consumption. However it also has regressive implications since tax incidence studies show that ultimately it would be poor people who would bear a great deal of the burden of many pollution taxes. "In other words, many pollution taxes would be highly regressive and therefore aggravate economic injustice.".[10] He therefore recommends that pollution taxes be linked to cuts in regressive taxes such as social security taxes.

Hahnel argues that Pigovian taxes, along with associated corrective measures advanced by market economists, ultimately fall far short of adequately or fairly addressing externalities. He argues such methods are incapable of attaining accurate assessments of social costs:

"Markets corrected by pollution taxes only lead to the efficient amount of pollution and satisfy the polluter pays principle if the taxes are set equal to the magnitude of the damage victims suffer. But because markets are not incentive compatible for polluters and pollution victims, markets provide no reliable way to estimate the magnitudes of efficient taxes for pollutants. Ambiguity over who has the property right, polluters or pollution victims, free rider problems among multiple victims, and the transaction costs of forming and maintaining an effective coalition of pollution victims, each of whom is affected to a small but unequal degree, all combine to render market systems incapable of eliciting accurate information from pollution victims about the damages they suffer, or acting upon that information even if it were known.[11]

Critique of private ownership and corporations

Advocates of parecon say the basis of capitalism is the concept of private ownership of resources and corporate entities, which confers upon every owner the right to do with their property as they please, even though decisions relating to some property may have unwanted effects on other people. They believe in a capitalist system people outside a corporation have limited ability to interfere with owners' activities while they abide by the law. Whilst consumers can influence corporations through their own market interactions, or through buying and selling of their goods, services, or even shares, advocates of parecon are unsatisfied with this limited influence, especially as organization of collective consumer action is difficult in a market economy.

Pareconists also believe that the state is unlikely to interfere in the market for the benefit of the public, and advocates interpret economic history as demonstrating that it is more often the other way around, through means of plutocracy.[citation needed] Being huge agglomerations of economic power, large corporations tend to interfere with the decision-making of states by lobbying for legislation and policy that suits their interests or, in many cases, by bribery, or by financing huge propaganda campaigns for the success of some political candidate who would support the corporation's interests. Promoters of parecon hold that the pursuit of private profit and power by these kinds of corporations is not in the interest of the majority of citizens.

Critique of tendency towards efficiency

Hahnel has also written a detailed discussion of parecon's desirability compared to capitalism with respect to incentives to innovate.[12] In capitalism, patent laws, intellectual property rights, industry structures, and barriers to market entry are institutional features that reward individual innovators while limiting the use of new technologies. Hahnel notes that, in contrast, "in a participatory economy all innovations will immediately be made available to all enterprises, so there will never be any loss of static efficiency.".[13] Innovation is sometimes the outcome of cumulative creativity, which pareconomists believe may not be legitimately attributed to individuals.

Participatory economics and socialism

Although participatory economics is not in itself intended to provide a general political system, clearly its practical implementation would depend on an accompanying political system. Advocates of parecon say the intention is that the four main ingredients of parecon be implemented with a minimum of hierarchy and a maximum of transparency in all discussions and decision making. This model is designed to eliminate secrecy in economic decision making, and instead encourage friendly cooperation and mutual support. This avoidance of power hierarchies puts parecon in the anarchist political tradition. Stephen Shalom has produced a political system meant to complement parecon, called Parpolity

Although parecon falls under left-wing political tradition, it is designed to avoid the creation of powerful intellectual elites or the rule of a bureaucracy, which is perceived as the major problem of the economies of the communist states of the 20th century. Parecon advocates recognize that monopolization of empowering labor, in addition to private ownership, can be a source of class division. Thus, a three-class view of the economy (capitalists, coordinators, and workers) is stressed, in contrast to the traditional two-class view of Marxism. The coordinator class, emphasized in Parecon, refers to those who have a monopoly on empowering skills and knowledge, and corresponds to the doctors, lawyers, managers, engineers, and other professionals in present economies. Parecon advocates argue that, historically, Marxism ignored the ability of coordinators to become a new ruling class in a post-capitalist society.[14]

While many types of production and consumption may become more localised under participatory economics, the model does not exclude economies of scale.

Criticisms

David Schweickart suggests Participatory Economics would be undesirable even if it was possible, accusing it of being:

"a system obsessed with comparison (Is your job complex more empowering than mine?), with monitoring (You are not working at average intensity, mate--get with the program), with the details of consumption (How many rolls of toilet paper will I need next year? Why are some of my neighbors still using the kind not made of recycled paper?"[15]

Planning

Participatory Economics would create a large amount of administrative work for individual workers, who would have to plan their consumption in advance, and a new bureaucratic class. Proponents of parecon argue that capitalist economies are hardly bureaucracy or meeting free, and a parecon would eliminate banks, advertising, stock market, tax returns and long-term financial planning. Albert and Hahnel claim that is probable that a similar number of workers will be involved in a parecon bureaucracy as in a capitalist bureaucracy,[16] with much of the voting achieved by computer rather than meeting, and those who are not interested in the collective consumption proposals not required to attend.[17]

Critics suggest that proposals require consideration of an unfeasibly large set of policy choices,[15] and that lessons from planned societies show that peoples' daily needs cannot be established well in advance simply by asking people what they want.[18] Albert and Hahnel note that markets themselves hardly adjust prices instantaneously,[19] and suggest that in a Participatory Economy Facilitation boards could modify prices on a regular basis. According to Hahnel these act according to democratically decided guidelines, can be composed of members from other regions and are impossible to bribe due to parecon's non-transferable currency,.[5] However, Takis Fotopoulos argues that "no kind of economic organisation based on planning alone, however democratic and decentralised it is, can secure real self-management and freedom of choice."[18]

Loss of efficiency

Parecon might reduce efficiency in the workplace. For one, expert and exceptional workers (e.g. exceptional surgeons and scientists) would not be performing their tasks full-time. Participatory economics would expect them to share in "disempowering work" and would not offer opportunities to seek additional compensation for their high ability or finding solutions to problems.

Theodore Burczak argues that it is impossible for workers to give the unbiased assessments of the "largely unobservable" characteristics of effort proposed as the basis for salary levels, and the absence of market exchange mechanisms likewise makes calculating social costs of production and consumption impossible.[20]